Excerpt:.....issue me a permit for the remittance of this amount by me to india to meet the above-mentioned indian income-tax liability 'the reply received was that the exchangecontrol authorities are unable to issue the permit for such purpose in terms of the current exchange control procedure. 12. the following circumstances in which the bond was executed clearly show that the tax clearance certificate was issued only on the specific undertaking given by the assessee to pay the arrears in instalments and to provide security bond for due payment and it was intended that the liability is to be fastened under the bond irrespective of the applicability of section 220(7) of the act. one ofthe clauses provided that the textile commissioner could grant an import certificate for a lesser amount if he..........april 24, 1972, to the controller of exchange. after stating that he had been assessed by the indian income-tax authorities to pay tax amounting to rs. 93,357 he had requested the authorities, 'please be good enough to let me know whether you could issue me a permit for the remittance of this amount by me to india to meet the above-mentioned indian income-tax liability '.. the reply received was that the exchangecontrol authorities are unable to issue the permit for such purpose in terms of the current exchange control procedure.11. the learned counsel for the revenue rightly characterised this letter and the reply as motivated only and is an attempt to circumvent the security bond furnished by the petitioner before the assessee was permitted to leave for ceylon and that the.....

Judgment:

V. Ramaswami, J.

1. In respect of assessment years 1950-51, 1951-52 and 1952-53, a partnership firm called M/s. Oakwell Estate, Haldmulla, Ceylon, and one of its partners, SP. Viswanathan Chettiar (hereinafter referred to as the 'assessee'), were assessed to tax in respect of their income arising from Ceylon, by the income-tax authorities in India, on the basis that the control and management of the firm vested in India. The total tax demand, after setting off for double taxation relief, which was outstanding and payable by the assessee, was Rs. 93,357. The assessee is an Indian citizen holding Indian passport and had been residing at Ceylon on a visa issued by the Ceylon Government. He had no properties in India.

2. Though the demands had been issued as early as 1952 and 1953, the tax had been in arrears and the assessee did not appear to have taken any steps to repatriate monies from Ceylon for payment of tax arrears. He came to India some time in 1972, in connection with the death of a near relation. On coming to know of this the Income-tax Officer had intimated all ports of embarkation about the tax arrears of the assessee.

3. By a petition dated February 14, 1972, the assessee requested the Additional Commissioner of Income-tax to direct the Income-tax Officer to issue a tax clearance certificate. This petition was forwarded to the Income-tax Officer, Circle-I, Karaikudi, for report. In his report, the Income-tax Officer pointed out that the assessee had not paid so far anything towards the arrears, that he had not moved the Ceylon authorities for remittance all these years, that his father has some assets in India and that unless the assessee is pinned down to a specific programme of clearance of arrears with adequate security it would be difficult to realise the arrears once the assessee is permitted to leave India. In the meanwhile, the assessee filed another petition on February 18, 1972, offering to pay and to furnish security for due payment of the arrears in monthly instalments of Rs. 1,500. He also enclosed with this petition a copy of the security bond to be executed by the writ petitioner herein with guarantee for the due payment of the instalments of tax. The assessee further prayed in this petition that instructions may be issued to the Tax Recovery Officer and the Income-tax Officer concerned to issue a tax clearance certificate and withdraw the orders issued to the various ports of embarkation enabling him to proceed to Ceylon. The petition further stated that there should not be any interruption in his entry and departure from India during the period of regular payment of monthly instalments of tax.

4. After calling for a report as to the solvency of the writ petitioner herein and after the petitioner executed a security bond the Tax Recovery Officer passed an order on April 4, 1972, stating that in satisfaction of thesecurity bond executed by the petitioner, Manickam Chettiar, guaranteeing for the payment of tax arrears the said Viswanathan Chettiar and the firm Oakwell Estate were permitted to pay the arrears of tax in monthly instalments of Rs. 1,500 commencing from the month of May, 1972, and payable on the last day of every month. The order further stated that if there v/as any default in payment of tax in any month, the permission granted to pay in instalments would be deemed to have been withdrawn with immediate effect and the entire balance of tax would become payable immediately. A tax clearance certificate also was given to the assessee.

5. None of the instalments was paid after the assessee left for Ceylon. The respondent, thereafter, issued a notice to the assessee on August 30, 1972, informing him that unless the defaulted instalments are made good by making a lump sum payment of Rs. 7,500 by September 30, 1972, and, thereafter, payment is made at the rate of Rs. 1,500 per month, the department would proceed against the surety direct. But no amount was remitted at all till September 30, 1972, or thereafter. But the petitioner filed this petition under Article 226 of the Constitution of India, praying for the issue of a writ of certiorari to quash the order of the respondent dated August 30, 1972, by which he had intimated that he would proceed against the surety directly in default of payment.

6. In this writ petition, the petitioner, who had executed the security bond, contended that he would be liable to pay only in the event of the assessee becoming a defaulter, that the assessee in spite of diligent efforts could not repatriate funds into India from Ceylon as permission was not granted by the Exchange Control authorities in Ceylon and that the assessee could not be treated as a defaulter under the provisions of Section 220(7) of the Income-tax Act, 1961 (hereinafter called the Act), and that, therefore, the collection of tax arrears would have to be stayed.

7. The respondent in his counter, in effect, contended that Section 220(7) is not applicable at all, that the liability of the assessee and the petitioner Is independent of Section 220(7) and the assessee had clearly contracted himself out of the provisions of that section and that the liability is fastened on the assessee and on his default on the petitioner on the basis of the undertaking given by the assessee in his petition dated February 18, 1972, and the security bond executed by the petitioner. The respondent also contended that having obtained a clearance certificate from the authorities, which they are not bound to give when the tax was in arrears, after giving an undertaking to pay the tax arrears in instalments and furnishing a security bond executed by the petitioner herein for due payment of the same, it is not open to the assessee or the petitioner to contend that they are not liable to be proceeded against in view of the provisions of Section 220(7) and they are estopped from contending the same.

8. The operative portion of the security bond executed by the petitioner reads as follows:

'Shri S.P. Viswanathan Chettiar and M/s. Oakwell Estate, Haldmulla, Ceylon, are in arrears of tax of Rs. 93,357. On an application to the Additional Commissioner of Income-tax (Recovery), Madras, for payment of above arrears in monthly instalments of Rs. 1,500 starting from May, 1972, and payable on the last day of every month, the Additional Commissioner of Income-tax called upon him to furnish security for the payment of tax arrears. Therefore, I, S. Manickam Chettiar of Sevarakottai of my own free will stand security for the tax arrears of Rs. 93,357 due from Sri SP. Viswanathan Chettiar and M/s. Oakwell Estate, Haldmulla, Ceylon, mortgaging the properties both movable and immovable specified in the Schedule given below. I shall not transfer the immovable property or any part thereof. In the event of any default on the part of Shri SP, Viswanathan Chettiar to pay the monthly instalment of tax arrears as mentioned above, I shall duly carry out any order that may be made against me with regard to the payment of the tax arrears. Any amount so payable shall be realised from the property hereby mortgaged and if the proceeds of the sale of the said property are insufficient to pay the amount due, I and my legal representatives will be personally liable to pay the balance....'

9. The learned counsel for the petitioner contended that his liability under the bond arises in the event of any default on the part of the assessee to pay the monthly instalment and that in view of Section 220(7) the assessee was not in default in payment of the monthly instalment. In this connection he also relied on a letter written by the assessee to the Additional Assistant Commissioner of Income-tax on May 13, 1972, in which he had stated that the assessee applied to the Controller of Exchange, Central Bank of Ceylon, Colombo, for permit for remittance of Rs. 93,357 to India to clear off his tax arrears and that the Controller of Exchange by his letter dated April 28, 1972, informed the assessee that he was unable to permit the assessee for the above purpose in terms of the current exchange control procedure. The assessee also had enclosed the letter dated April 24, 1972, to the Controller of Exchange, Colombo, and the reply received by him.

10. It is useful to extract the request of the assessee made in the letter dated April 24, 1972, to the Controller of Exchange. After stating that he had been assessed by the Indian income-tax authorities to pay tax amounting to Rs. 93,357 he had requested the authorities, 'please be good enough to let me know whether you could issue me a permit for the remittance of this amount by me to India to meet the above-mentioned Indian income-tax liability '.. The reply received was that the exchangecontrol authorities are unable to issue the permit for such purpose in terms of the current exchange control procedure.

11. The learned counsel for the revenue rightly characterised this letter and the reply as motivated only and is an attempt to circumvent the security bond furnished by the petitioner before the assessee was permitted to leave for Ceylon and that the question of applicability of Section 220(7) does not arise at all for enforcing the security bond against the petitioner.

12. The following circumstances in which the bond was executed clearly show that the tax clearance certificate was issued only on the specific undertaking given by the assessee to pay the arrears in instalments and to provide security bond for due payment and it was intended that the liability is to be fastened under the bond irrespective of the applicability of Section 220(7) of the Act. The assessee had been in arrears of this huge sum of Rs. 93,357 since 1954. In his first petition dated February 14, 1972, the assessee had stated that he made a number of attempts with the Ceylon Government for permission to repatriate funds to India for payment of tax liability but such permission had not been granted. The assessee had also stated that unless he returns to Ceylon it will not be possible for him to manage the estate and continue his efforts for repatriation of funds to India. He had promised in that petition that as soon as he is able to repatriate any fund to India he would first utilise the sum in discharge of the tax liability. But the Tax Recovery Officer in his report on this petition was not willing to accept the statement and after pointing out that the assessee had not paid so far anything towards the arrears and that he had not moved the Ceylon authorities for remittance all these years, he had informed the Commissioner that unless the assessee is pinned down to a specific programme of clearance of arrears with adequate security it would be difficult to realise the arrears once the assessee is permitted to leave India. Further, he had also stated in that report that the assessee's father has some assets in India and thereby suggesting that if the tax clearance certificate is not given the father of the assessee might pay the amount.

13. It is seen from the recitals of the security bond executed by the petitioner herein that when the assessee requested for permission to pay the arrears in instalments, the Additional Commissioner was also not willing to make any order for payment of the arrears in monthly instalments of Rs. 1,500 unless the assessee is willing to furnish security for payment of the instalments. If the understanding was that the assessee would be liable to remit only if he is able to get clearance from the Ceylon authorities, no security would have been required. Under Section 230 of the Act, no person who is not domiciled in India, or, who, even if domiciled in India at the time of his departure, has, in the opinion of an income-taxauthority, no intention of returning to India, shall leave the territory of India by land, sea or air unless, he first obtains from such competent authority a certificate stating that he has no liabilities under the Income-tax Act, or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by the person. The respondent has stated that the clearance certificate under Section 230 was given to the assessee only on his specific undertaking to pay the tax arrears in instalments of Rs. 1,500 per month from May, 1972, and to furnish security for the due and proper payment of the instalments. In this connection the learned counsel for the revenue also relied on the doctrine of promissory estoppel. This doctrine was first enunciated by Denning, J. (as he then was) in Central London Property Trust Ltd. v. High Trees House Ltd., [1947] 1 KB 130 as flowing in equity when he found that on the facts in that case he could not rest his decision on the strict rule of estoppel. The principle as explained by Denning L.J. in the later case. Combe v. Combe, [1951] 2 KB 215, [1951] 1 All ER 767, 770 (CA) is:

'Where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which be himself has so introduced, even though it is not supported in point of law by any consideration, but only by his word.'

14. As explained by Asquith L.J. in the same judgment, when a promise is given which (1) is intended to create legal relations, (2) is intended to be acted upon by the promisee and (3) is in fact so acted upon, the prornissor cannot bring an action against the promisee which involves the repudiation of his promise or is inconsistent with it. This principle was later on approved by the House of Lords in Tool Metal . v. Tungsten Electric Co. Ltd., [1955] 2 All ER 657 (HL).

15. These decisions were considered by the Supreme Court first in Union of India v. Anglo-Afghan Agencies, AIR 1968 SC 718, wherein the facts were these: In 1962, in exercise of the powers under the Imports (Control) Order 1955, the Central Government promulgated the Export Promotion Scheme providing incentive to exporters of woollen textiles and goods. Under this scheme an exporter would be entitled to import raw materials to an extent of an amount equal to 100 per cent. of the value of his exports. One ofthe clauses provided that the Textile Commissioner could grant an import certificate for a lesser amount if he is satisfied that the declared value of the goods exported is higher than the real value of the goods. While granting a certificate of export entitlement under this scheme to the Indo-Afghan Agencies Ltd., the Textile Commissioner reduced the amount of entitlement on the basis of certain enquiry alleged to have been made by him. The company moved the High Court to set aside the order of the Textile Commissioner and the Government and to direct them to issue import licence for an amount equal to 100 per cent. of the value of their exports. This prayer was resisted on the ground that the Export Promotion Scheme itself was administrative in character and that it contained mere executive instructions which created no enforceable right in exporters. The High Court allowed the writ petition and, on a further appeal, the Supreme Court held, relying on the principle of promissory estoppel, that the assurance given by the Government under the Export Promotion Scheme would be enforceable because it was intended to be acted upon and was in fact acted upon. This principle was also accepted by the Supreme Court in a later case. Turner Morrison & Co. v. Hungerford Investment Trust, : [1972]85ITR607(SC) .as a rule which 'undoubtedly advanced the cause of justice'.

16. In the present case, the assessee promised to pay the arrears in monthly instalments and the petitioner executed the bond agreeing to pay the amount in case of default by the assessee. This undertaking and the security bond was intended to be acted upon and in fact was acted upon by the department by permitting the assessee to pay the arrears in instalments and also issuing a tax clearance certificate in order to enable the assessee to leave the country. The assessee and the petitioner could not be permitted to repudiate this promise or act or bring an action inconsistent with the same. We are also of the view that having obtained a clearance certificate on a representation that he would pay the arrears in instalments and furnish security, it was not open to the assessee to rely on Section 220(7). The petitioner had also specifically undertaken to pay the arrears due in default of the assessee paying the instalments and it is not now open to him to say that the assessee was not in default in view of Section 220(7).

17. We are, therefore, of opinion that there are no merits in this writ petition and it is liable to be dismissed. We, accordingly, dismiss the writ petition and discharge the rule nisi. The respondent will be entitled to his costs. Counsel fee Rs. 250.